Re-emerging poor a target for some retailers

BELGRADE (Reuters) - As recession squeezes the fledgling middle classes of emerging economies, special shops for the poor are seizing the opportunities.

A woman leaves from a government-backed social SOS discount supermarket in Belgrade March 31, 2009. REUTERS/Marko Djurica

Slovenia and Serbia are among countries opening “SOS” shops that allow custom only from those officially registered as poor, who need special cards to access them.

“We see this effort as a new retail concept,” Trade Minister Slobodan Milosavljevic said at a ceremony in March to open the first SOS shop, a whitewashed old house with a bright red sign. “The gauntlet has been thrown to other retailers and we can already see somewhat cheaper food in other markets.”

The Slovenian initiative is primarily socially motivated but in Serbia, the Jabuka (Apple) retail chain also aims to make money just as such discounters as Wal-Mart and Target in the United States benefit from consumers seeking value for money.

“We didn’t have profits in mind, but rather our social responsibility for the poor,” Milorad Miskovic, Jabuka CEO, told Reuters. In Belgrade alone, 50,000 pensioners live on a monthly 50-100 euros ($68-136) and buy mainly bread, milk and poultry, he said.

Serbia’s economy has grown by a steady 7 percent a year since 2003, but the credit crunch and falling global demand have led to a sharp economic contraction, estimated by the central bank at 5-7 percent in the first quarter of 2009.

So far 20,000 Belgrade residents have received special cards to buy staples, sometimes at half price, from the stores owned by Djordjije Nicovic, an ex-banker who has moved into farms and construction over the past eight years.

Jabuka will launch its fourth shop this week, and wants to expand across Serbia but the premises offered are often decrepit, said Miskovic: “We don’t want people to feel like entering a warehouse, but rather to shop with a sense of dignity.”

Minister Milosavljevic said the SOS store’s customers “are the people who failed to jump the transition train. Those shops give them a sense of safety.

“I felt so bad because hundreds of people arrived to buy cheap food, the people you could see were scared for their future,” he said.

Ljiljana Simin, a 68-year old retired economist among those shopping at the SOS store, was more angry than sad: “My pension is only 200 euros and I cannot afford anything better than this,” she said. “That’s so humiliating.”

The crisis is taking a growing toll on everyone in Serbia, which is heavily reliant on foreign investment and borrowing for growth, as it tries to catch up with other ex-Communist states.

“At the end of every working day we put all pastries and bread in a plastic box and leave it in front of the shop,” said baker Snezana Janjevic. “It’s always empty in the morning.”

LIMITS

The SOS shops impose limits on individual purchases to prevent abuse. Anyone with a monthly income of less than 20,000 dinars, or just under 200 euros, can shop at the outlets where prices start 20 percent cheaper than regular grocery stores.

The 200-euro income level is double the official poverty threshold, below which 7.8 percent of the population fell in 2008.

Jabuka’s SOS model — low-margins and fast payment — is challenging Serbia’s typical way of doing business. The company aims for a tiny profit margin compared with the Serbian average of around 30 percent, CEO Miskovic said.

“Our gross margins are between five and six percent but turnover is three to five times higher than at a typical supermarket,” he said.

Minister Milosavljevic said the SOS model is also attractive to suppliers, because payments are made within 30-45 days rather than the usual 120-180 days.

Retail in Serbia, which accounts for 17 percent of its GDP, fell 16 percent in the first two months of the year — compared with a fall of 3.1 percent over one year in March in the European Union countries — and was forecast to have fallen by a cumulative 10-12 percent in January-March.

London-based Planet Retail expects average per capita retail sales in Serbia to fall by seven percent to 1,317 euros in 2009 — half the level of neighbouring Croatia and below Bulgaria and Romania.

LOST MIDDLE CLASS

A decade of wars, sanctions and economic mismanagement decimated Serbia’s middle class in the 1990s, but stability in the boom years had enabled a growing number of people to afford luxuries such as the latest cars and foreign holidays.

Many in Serbia live above the basic definition of poverty — set at the cost of buying 2,280 calories of food a day.

Bankers see those with a monthly income of 500 euros — 150 euros above the national average — as middle class but Goran Nikolic, an analyst with Serbia’s Chamber of Commerce, said anyone with a steady job, an apartment and a relatively new car fits the bill.

“The crisis has seriously hit them with a six percent year-on-year drop in euro-denominated real wages in March, job losses, deteriorated lending conditions and overall degradation of the social fabric,” he said.

Slovenia, which has also opened poor stores even though it is the only ex-fellow Yugoslav republic to have joined the European Union, considers those with a monthly income below 500 euros as poor.

The crisis has also deterred foreign retail investors: Turkey’s Migros and Austria’s Spar grocery chains have given up plans to invest in Serbia this year.

Nonetheless, a week after the opening of the first SOS shop, investors eyeing the comfortable end of the market opened the Usce mall, offering a wide range of goods from Zara and Marks & Spencer’s to Versace, Joop and Boss.

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On its first day, 63,000 people visited the mall, said Danijela Jovanovic, a spokeswoman for MPC Properties, the Serbian company 25-percent owned by Merrill Lynch which is behind the 150-million euro investment.

Over the past month, 1.2 million people have visited.

“I feel sorry for all the poor people, but I have worked so hard for 20 years and I deserve every cent of it,” said Jovana Arsic, 44, a businesswoman, after buying a 500-euro pair of Escada shoes.